April 24, 2019 10:45 AM, EDT

Truckmaker Volvo Gains After Profit Surge Offsets Order Slowdown

VolvoOre Huiying/Bloomberg News

Volvo Group rose after a jump in first-quarter profit helped to quell fears that demand is weakening in key markets.

The Swedish truck and construction-equipment manufacturer gained as much as 4.6%, the most in almost three months, after operating profit published April 24 beat the highest of any analyst forecast compiled by Bloomberg.

Europe’s second-largest truckmaker boosted profitability in the first quarter to 11.8%, surpassing the company’s 10% margin target, as demand remained buoyant. Volvo left its market forecasts unchanged, with CEO Martin Lundstedt telling analysts in Stockholm that he sees upside potential for its forecast of 310,000 truck registrations in North America this year.

Still, truck orders plunged by 36% in the first quarter, mainly driven by North America, where factories are almost fully booked for the rest of the year. Demand in Europe fell by 15% through March with economic growth in Volvo’s most important region expected to decline to the lowest level since 2013.

“We are not worried about a fast-pace slowdown of the North American order intake as long as the order book situation is as solid as it is,” Pareto analysts Erik Paulsson and Anders Roslund said in a note.

Volvo shares have gained 37% since the start of the year.

Manufacturers are facing up to tougher economic conditions in Europe as a U.S.-China trade spat remains unresolved. Previous downturns have taken a heavy toll on Volvo’s industry-leading profit margins. Lundstedt, talking about the broader economy, this month said “some sort of a correction is rather expected.” He still sees the company on firm footing after boosting margins.

“A strong service business and high volume flexibility are key for us to be more resilient to changes in the business environment,” Lundstedt said in a statement April 24.

In the first quarter, Volvo’s adjusted operating profit rose 53% to 12.7 billion kronor ($1.4 billion), beating an average forecast of 10.5 billion kronor of analysts surveyed by Bloomberg.